SUPREME COURT OF FLORIDA CASE NO. SC-10-19 JAMES PENDERGAST, Lower Tribunal No. 09-10612 Individually and on behalf of all others similarly situated, Appellant, v. Sprint NEXTEL CORPORATION, Sprint SOLUTIONS, INC., and Sprint SPECTRUM, L.P., Appellees. BRIEF AMICUS CURIAE OF CTIA—THE WIRELESS ASSOCIATION® IN SUPPORT OF APPELLEES QUESTIONS CERTIFIED FROM THE UNITED STATES ELEVENTH CIRCUIT COURT OF APPEALS Andrew G. McBride (pro hac vice) Elbert Lin (pro hac vice) Stephen J. Obermeier (pro hac vice) Charles C. Lemley (Fla. Bar No. 0016314) WILEY REIN LLP 1776 K Street, NW Washington, DC 20006 Tel: (202) 719-7000 Fax: (202) 719-7049 Counsel for Amicus Curiae CTIA—The Wireless Association®
Transcript
SUPREME COURT OF FLORIDA
CASE NO. SC-10-19
JAMES PENDERGAST, Lower Tribunal No. 09-10612 Individually and on behalf of all others similarly situated, Appellant, v. Sprint NEXTEL CORPORATION, Sprint SOLUTIONS, INC., and Sprint SPECTRUM, L.P., Appellees.
BRIEF AMICUS CURIAE OF CTIA—THE WIRELESS ASSOCIATION® IN SUPPORT OF APPELLEES
QUESTIONS CERTIFIED FROM THE UNITED STATES ELEVENTH CIRCUIT COURT OF APPEALS
Andrew G. McBride (pro hac vice) Elbert Lin (pro hac vice) Stephen J. Obermeier (pro hac vice)
Charles C. Lemley (Fla. Bar No. 0016314) WILEY REIN LLP 1776 K Street, NW Washington, DC 20006 Tel: (202) 719-7000 Fax: (202) 719-7049 Counsel for Amicus Curiae
CTIA—The Wireless Association®
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TABLE OF CONTENTS
TABLE OF AUTHORITIES ................................................................................... ii STATEMENT OF IDENTITY AND INTEREST ...................................................1 SUMMARY OF THE ARGUMENT .......................................................................1 ARGUMENT ............................................................................................................2 I. SPRINT’S BILATERAL ARBITRATION AGREEMENT IS NOT
UNCONSCIONABLE....................................................................................2 A. The Doctrine of Unconscionability Is An Exception To The
General Rule of Freedom of Contract That Focuses On The Fairness To The Parties At The Time Of Contracting.. .......................2
B. Sprint’s Bilateral Arbitration Agreement Is Not Substantively Unconscionable Because Of The Benefits To Consumers. .................4
C. Substantive Unconscionability Does Not Concern The Hypothetical Effects Of A Contract On Third Parties. ........................9
II. THE FAA PREEMPTS FLORIDA PUBLIC POLICY OR THE FDUTPA FROM PROHIBITING ENFORCEMENT OF SPRINT’S BILATERAL ARBITRATION AGREEMENT. .........................................10 A. The FAA Preempts The Use Of Florida Public Policy To
Invalidate Sprint’s Bilateral Arbitration Agreement..........................11 B. The FAA Preempts The FDUTPA From Prohibiting
Enforcement Of Sprint’s Arbitration Clause......................................14 C. Under The FAA, Courts May Only Consider Formation Defects
In Assessing The Validity Of An Arbitration Agreement. ................16 CONCLUSION.......................................................................................................20 CERTIFICATE OF SERVICE ...............................................................................21 CERTIFICATE OF COMPLIANCE......................................................................23
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TABLE OF AUTHORITIES
FEDERAL CASES Allied-Bruce Terminix Cos. v. Dobson,
513 U.S. 265 (1995) .........................................................................................5, 12
Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997)..............................................................................................7
Am. Express Co. v. Italian Colors Restaur., --- S. Ct. ---, 2010 WL 1740528 (May 3, 2010) .................................................13 Boomer v. AT&T Corp.,
Conn. Dep’t of Income Maint. v. Heckler, 471 U.S. 524 (1985)............................................................................................16
Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681 (1996)......................................................................................14, 15
Doctor’s Assocs., Inc. v. Hamilton, 150 F.3d 157 (2d Cir. 1998) ...............................................................................15
In re Am. Express Merchants’ Litigation, 554 F.3d 300 (2d Cir. 2009) ...............................................................................13 KKW Enters. Inc. v. Gloria Jean’s Gourmet Coffees Franchising Corp.,
514 U.S. 52 (1995)..............................................................................................11
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Metro East Ctr. For Conditioning & Health v. Qwest Commc’ns Int’l, Inc., 294 F.3d 924 (7th Cir. 2002) ................................................................................7
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,
473 U.S. 614 (1985)..............................................................................................5
Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983)................................................................................................11
U.S. Asphalt Ref. Co. v. Trinidad Lake Petroleum Co., 222 F. 1006 (S.D.N.Y. 1915)..............................................................................18
Bland ex rel. Coker v. Health Care & Retirement Corp. of Am., 927 So. 2d 252 (Fla. 2d DCA 2006).............................................................4, 5, 7
Blankfeld v. Richmond Health Care, Inc., 902 So. 2d 296 (Fla. 4th DCA 2005)..................................................................10
Coady v. Cross Country Bank, 729 N.W.2d 732 (Wis. Ct. App. 2007).................................................................8
Del. & H. Canal Co. v. Pa. Coal Co., 50 N.Y. 250 (1872) .......................................................................................17, 18
Edelist v. MBNA Am. Bank, 790 A.2d 1249 (Del. Super. Ct. 2001)..................................................................8
Estate of Perez v. Life Care Ctrs. of Am., 23 So. 3d 741 (Fla. 5th DCA 2009)......................................................................9
Fla. Dept. of Fin. Servs. v. Freeman, 921 So. 2d 598 (Fla. 2006) ...................................................................................3
Fla. Windstorm Underwriting v. Gajwani, 934 So. 2d 501 (Fla. 3d DCA 2005).....................................................................3 Fonte v. AT&T Wireless Servs., Inc.,
Green v. Life & Health of Am., 704 So. 2d 1386 (Fla. 1998) .................................................................................3
Hill v. Deering Bay Marina Ass’n, Inc., 985 So. 2d 1162 (Fla. 3d DCA 2008) ..................................................................3 Med. Ctr. Cars, Inc. v. Smith, 727 So. 2d 9 (Ala. 1998).......................................................................................8
Murphy v. Courtesy Ford, L.L.C.,
944 So. 2d 1131 (Fla. 3d DCA 2006)...................................................................9
Pearce v. Doral Mobile Home Villas, Inc., 521 So. 2d 282 (Fla. 2d DCA 1988).....................................................................4
Premier Real Estate Holdings, LLC v. Butch, 24 So. 3d 708 (Fla. 4th DCA 2009)......................................................................4
Rains v. Found. Health Sys. Life & Health, 23 P.3d 1249 (Colo. App. 2001)...........................................................................8
Ranieri v. Bell Atlantic Mobile, 304 A.D.2d 353 (NY 2003) ..................................................................................8
State ex rel. Fulton v. Ives, 167 So. 394 (Fla. 1936) ....................................................................................2, 3
Steinhardt v. Rudolph,
422 So. 2d 884 (Fla. 3d DCA 1982).....................................................................3
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Tropical Ford, Inc. v. Major, 882 So. 2d 476 (Fla. 5th DCA 2004)....................................................................4
Voicestream Wireless Corp. v. U.S. Commc’ns, Inc., 912 So. 2d 34 (Fla. 4th DCA 2005)......................................................................9
Walther v. Sovereign Bank, 872 A.2d 735 (Md. 2005) .....................................................................................8
Joint Hearings Before the Subcomms. of the Comms. of the Judiciary on S. 1005 and H.R. 646, 68th Cong. 38 (1924) .........................................................18
OTHER AUTHORITIES
Lindsay R. Androski, A Contested Merger: The Intersection of Class
Actions and Mandatory Arbitration Clauses, 2003 U. CHI. LEGAL F. 631 (2003) .......................................................................6
Jonathan R. Bunch, To Be Announced: Silence from the United States
Supreme Court and Disagreement Among Lower Courts Suggest an Uncertain Future for Class-Wide Arbitration, 2004 J. DISP. RESOL. 259 (2004).......................................................................6, 7
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Wesley A. Sturges, A Treatise on Commercial Arbitrations and Awards, §§ 15, 22 (1930)......................................................................................13, 17, 18
Stephen J. Ware, The Case for Enforcing Adhesive Arbitration
Agreements—with Particular Consideration of Class Actions and Arbitration Fees, 5 J. AM. ARB. 251 (2006) .....................................................6, 7
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STATEMENT OF IDENTITY AND INTEREST
CTIA—The Wireless Association® (“CTIA”) is an international nonprofit
membership organization representing all sectors of the wireless communications
industry—cellular, personal communication services, and enhanced specialized
mobile radio. CTIA has a strong interest in this proceeding because many of its
members have adopted as standard features of their business contracts provisions
that require the parties to pursue disputes in bilateral arbitration rather than courts
of general jurisdiction. The elimination of bilateral arbitration agreements may
cause CTIA’s members to abandon arbitration in consumer contracts, driving up
costs and prices.
SUMMARY OF THE ARGUMENT
The Federal Arbitration Act (FAA) was enacted to reverse judicial hostility
to the enforcement of commercial agreements to arbitrate and to ensure that such
agreements are enforced according to their terms. In this case, Appellant agreed to
an arbitration clause in his contract with Sprint for wireless telephone service.
That clause provided that all arbitration would occur on a bilateral basis—with no
class proceedings. Appellant now claims that the clause is substantively
unconscionable, frustrates the remedial purposes of the Florida Deceptive and
Unfair Trade Practices Act (FDUTPA), and is contrary to Florida public policy.
Unconscionability is a limited exception to the freedom of contract that
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weighs the fairness of a contract to the parties at the time of formation. A contract
is substantively unconscionable only if it would be non-sensical for a party to have
taken the deal. That is not the case here. The benefits of a bilateral arbitration
agreement—including lower prices resulting from a company’s lower litigation
costs—make it more than reasonable for Appellant to have accepted the bargain.
To the extent that Florida public policy or the FDUTPA would prohibit
enforcement of the arbitration clause, they are preempted by the FAA. To allow
state public policy or the FDUTPA to nullify Sprint’s arbitration clause would
contravene the substantive command of Section 2 that arbitration agreements are
valid, irrevocable, and enforceable as written. Moreover, the text and history of
Section 2 make clear that only defects in contract formation are a proper basis for
refusing to enforce an arbitration clause.
ARGUMENT
I. SPRINT’S BILATERAL ARBITRATION AGREEMENT IS NOT UNCONSCIONABLE.
A. The Doctrine of Unconscionability Is An Exception To The General Rule of Freedom of Contract That Focuses On The Fairness To The Parties At The Time Of Contracting.
This Court has long been clear that “[f]reedom of contract is the general
rule.” State ex rel. Fulton v. Ives, 167 So. 394, 412 (Fla. 1936). “[I]t is a matter of
great public concern that freedom of contract be not lightly interfered with.”
Bituminous Cas. Corp. v. Williams, 17 So. 2d 98, 101 (Fla. 1944). “[R]estraint is
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the exception, and when it is exercised to place limitations upon the right to
contract, . . . it can be justified only by exceptional circumstances.” Ives, 167 So.
at 412. Ordinarily, “parties are masters of their own contract, and then servants to
its ultimate terms.” Fla. Dept. of Fin. Servs. v. Freeman, 921 So. 2d 598, 607 (Fla.
2006) (Cantero, J., concurring). The principle is as vital today as when it was first
recognized in English common law. See, e.g., Green v. Life & Health of Am., 704
So. 2d 1386, 1391 (Fla. 1998).1
The unconscionability doctrine provides a limited, “infrequently used”
exception to the rule of freedom of contract. Steinhardt v. Rudolph, 422 So. 2d
884, 890 (Fla. 3d DCA 1982). A court may “with great caution” invoke the
doctrine in extraordinary circumstances to refuse to enforce a contract or certain
contract provisions. Gainesville Health Care Ctr., Inc. v. Weston, 857 So. 2d 278,
284 (Fla. 1st DCA 2003). “Synonyms for the term unconscionable include
‘shocking to the conscience’ and ‘monstrously harsh.’” Garrett v. Janiewski, 480
So. 2d 1324, 1326 (Fla. 4th DCA 1985). Unconscionability does not permit a
court to correct “contractual terms which are unreasonable or impose an onerous
hardship.” Steinhardt, 422 So. 2d at 890; see also Belcher v. Kier, 558 So. 2d
1 See also Hill v. Deering Bay Marina Ass’n, Inc., 985 So. 2d 1162, 1166 (Fla. 3d DCA 2008) (“[C]ourts do not rewrite contracts.”); Fla. Windstorm Underwriting v. Gajwani, 934 So. 2d 501, 506 (Fla. 3d DCA 2005) (“The court should not strike down a contract, or a portion of a contract, on the basis of public policy grounds except in very limited circumstances.”).
quotation marks omitted). “[C]lass-action arbitration changes the nature of
arbitration,” and the “relative benefits of class-action arbitration are much less
assured.” Stolt-Nielsen, 2010 WL 1655826, at *13. Indeed, grafting class
procedures onto arbitration “subjects arbitration to the very judicial burden that the
contracting parties sought to avoid through arbitration.” Lindsay R. Androski, A
Contested Merger: The Intersection of Class Actions and Mandatory Arbitration
Clauses, 2003 U. CHI. LEGAL F. 631, 649 (2003).2
2 See also Jonathan R. Bunch, To Be Announced: Silence from the United States Supreme Court and Disagreement Among Lower Courts Suggest an Uncertain Future for Class-Wide Arbitration, 2004 J. DISP. RESOL. 259, 272 (2004) (“[T]he greatest advantages of arbitration are in many instances the greatest disadvantages of litigation, yet class-wide arbitration . . . lessens the distinction
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Accordingly, by accepting a bilateral arbitration agreement, Appellant
received price benefits, as well as access to a low-cost and streamlined dispute
resolution forum, while sacrificing only the ability to aggregate small claims if
such claims were to arise and were appropriately aggregable.3 See Metro East Ctr.
For Conditioning & Health v. Qwest Commc’ns Int’l, Inc., 294 F.3d 924, 927 (7th
Cir. 2002) (“Customers . . . are compensated through lower rates for any net loss
they may experience in arbitration.”). This deal is hardly one that “no man in his
senses and not under delusion would make.” Bland, 927 So. 2d at 256. It was
perfectly reasonable at the time of contracting for Appellant to trade the chance of
earning a paltry sum someday in a yet-to-exist class arbitration for the benefits of
bilateral arbitration. See Ware, supra, at 268-69. After all, class action
plaintiffs—as opposed to their attorneys—rarely receive large recoveries. See
Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 617 (1997) (noting the “relatively
paltry potential recoveries” for class action plaintiffs); see also Class Action
Fairness Act of 2005, Pub. L. No. 109-2 § 2(a)(3), 119 Stat. 4 (“Class members
often receive little or no benefit from class actions, and are sometimes harmed.”).
between the two processes.”). 3 As a plurality of the Supreme Court recently made clear, the ability to proceed by class is merely a matter of procedure that “leaves the parties’ legal rights and duties intact and the rules of decision unchanged.” Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 130 S. Ct. 1431, 1443 (2010).
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Many courts have recognized the fairness of this bargain to the consumer
and have refused substantive unconscionability challenges to bilateral arbitration
agreements.4 Those courts that have disagreed have, like Appellant, erroneously
considered only whether a class arbitration waiver might effectively bar consumers
from making small-value contract claims. As noted above, that premise is false—
bilateral arbitration may enhance consumer as opposed to attorney welfare.
In any event, the proper question is whether the costs and benefits of the
bargain are something that a reasonable consumer might have accepted at the time
of contracting. Viewed in that light, Sprint’s arbitration agreement is not
substantively unconscionable. Even if the agreement did effectively foreclose
some small value claims, which it does not, 5 it is more than plausible that a
consumer would accept that speculative cost in exchange for lower prices and an
4 See, e.g., Snowden v. CheckPoint Check Cashing, 290 F.3d 631, 638 (4th Cir. 2002); Walther v. Sovereign Bank, 872 A.2d 735, 750 (Md. 2005); Med. Ctr. Cars, Inc. v. Smith, 727 So. 2d 9, 20 (Ala. 1998); Rains v. Found. Health Sys. Life & Health, 23 P.3d 1249, 1253 (Colo. App. 2001); Edelist v. MBNA Am. Bank, 790 A.2d 1249, 1261 (Del. Super. Ct. 2001); Ranieri v. Bell Atlantic Mobile, 304 A.D.2d 353 (NY 2003); AutoNation USA Corp. v. Leroy, 105 S.W.3d 190, 200 (Tex. App. 2003). Although Appellant claims that there is a “consensus among courts nationwide [against] class action bans,” Appellant’s Br. 18, a case that he cites acknowledges that “a majority of state and federal courts have enforced class action waivers and found them not unconscionable,” Coady v. Cross Country Bank, 729 N.W.2d 732, 746 (Wis. Ct. App. 2007) (emphasis in original). 5 The agreement provides customers a number of ways to pursue small value claims. See Appellee’s Br. 46-48.
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efficient method for resolving disputes. 6
C. Substantive Unconscionability Does Not Concern The Hypothetical Effects Of A Contract On Third Parties.
Appellant’s main argument is that Sprint’s arbitration agreement is
substantively unconscionable because “it acts as an exculpatory clause for
corporate wrongdoers.” Appellant’s Br. 10. In his view, the class-arbitration
waiver “ensures that [Sprint] is insulated from responsibility for its actions because
no single loss will ever have the economic value to deter Sprint’s misconduct,” and
“state governments simply do not have the resources to police all potential
corporate wrongdoers.” Id. at 11, 16. As Sprint notes, no evidence shows that this
is so, see Appellee’s Br. 48-52, nor is there evidence of increased consumer fraud
or decreased consumer satisfaction in states that allow class-arbitration waivers.
Appellant’s assertion that a court can find unconscionability “if the
6 Appellant’s suggestion that a contract of adhesion is procedurally unconscionable per se, Appellant’s Br. 25 n.17, 33, must be rejected. Nearly every District Court of Appeal has explained that the adhesive nature of a contract is just one factor in determining procedural unconscionability. See, e.g., Gainesville Health Care Ctr., 857 So. 2d at 284 (listing as a factor for procedural unconscionability “whether the terms were merely presented on a ‘take-it-or-leave-it’ basis”); Murphy v. Courtesy Ford, L.L.C., 944 So. 2d 1131, 1134 (Fla. 3d DCA 2006) (same); Estate of Perez v. Life Care Ctrs. of Am., 23 So. 3d 741, 742 (Fla. 5th DCA 2009) (same); Voicestream Wireless Corp. v. U.S. Commc’ns, Inc., 912 So. 2d 34, 40 (Fla. 4th DCA 2005) (“[T]he presence of an adhesion contract alone does not require a finding of procedural unconscionability.”). Moreover, adopting Appellant’s suggestion would render essentially every consumer agreement in the State of Florida procedurally unconscionable, a sweeping conclusion inconsistent with the principle that the unconscionability doctrine is to be applied infrequently.
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[arbitration] clause at issue is sufficiently exculpatory or frustrates the remedial
purpose of a statute,” Appellant’s Br. 21, conflates two distinct lines of Florida
case law. “There are two frameworks which courts have used when confronted
with th[e] issue [of the enforceability of an arbitration agreement]: (1) whether the
arbitration clause is void as a matter of law because it defeats the remedial purpose
of the applicable statute, or (2) whether the arbitration clause is unconscionable.”
All the cases that Appellant cites to support his novel “exculpatory clause test” for
unconscionability, Appellant’s Br. 26-30, come within the first framework. The
cases do not find unconscionability; indeed, Appellant readily acknowledges that
he is asking this Court to import into unconscionability doctrine a legal principle
that already exists “under a different name.” Id. at 26.7 As explained below, the
question whether bilateral arbitration clauses act as exculpatory clauses and should
be barred is at bottom a legislative one for Congress.
II. THE FAA PREEMPTS FLORIDA PUBLIC POLICY OR THE FDUTPA FROM PROHIBITING ENFORCEMENT OF SPRINT’S BILATERAL ARBITRATION AGREEMENT.
To the extent Appellant relies not on unconscionability, but rather on Florida
7 One of the cases cited by Appellant, see Appellant’s Br. 30 n.22, expressly states that “holding a contractual provision unenforceable because it defeats the remedial provisions of a statute, and is thus contrary to public policy, is distinct from finding unconscionability.” Blankfeld v. Richmond Health Care, Inc., 902 So. 2d 296, 299 (Fla. 4th DCA 2005) (emphasis added).
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public policy or the FDUTPA to render the arbitration agreement unenforceable,
its arguments are precluded by the FAA. Congress enacted the FAA to “revers[e]
centuries of judicial hostility to arbitration agreements,” Scherk v. Alberto-Culver
Co., 417 U.S. 506, 510 (1974), and “to ensure that private agreements to arbitrate
are enforced according to their terms,” Mastrobuono v. Shearson Lehman Hutton,
Inc., 514 U.S. 52, 53-54 (1995) (internal quotation marks omitted). Section 2 of
the FAA states that an agreement to arbitrate “shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in equity for the revocation
of any contract.” 9 U.S.C. § 2. The Supreme Court has explained that “Section 2
is a congressional declaration of a liberal federal policy favoring arbitration
agreements, notwithstanding any state substantive or procedural policies to the
contrary.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24
(1983). State law or policy that conflicts with the FAA is preempted.
A. The FAA Preempts The Use Of Florida Public Policy To Invalidate Sprint’s Bilateral Arbitration Agreement.
Even if Sprint’s bilateral arbitration clause is inconsistent with Florida
public policy (which it is not, see Appellee’s Br. 55-56), that public policy cannot
be used to nullify the arbitration clause. To use state public policy as a basis for
refusing to enforce Sprint’s arbitration agreement would conflict in a number of
ways with the substantive command of Section 2 of the FAA. Under the
Supremacy Clause, the FAA must supersede Florida law in these circumstances.
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“[T]he central or primary purpose of the FAA is to ensure that private
agreements to arbitrate are enforced according to their terms.” Stolt-Nielsen, 2010
WL 1655826, at *11 (internal quotation marks omitted). A court cannot use state
public policy to overcome that federal policy and conclude that arbitration
agreements must include certain terms, such as provisions for class arbitration, in
order to be enforceable. See, e.g., Allied-Bruce Terminix Cos., 513 U.S. at 281
(“What States may not do is decide that a contract is fair enough to enforce all its
basic terms (price, service, credit), but not fair enough to enforce its arbitration
clause. The Act makes any such state policy unlawful . . . .” (emphasis added)).
Indeed, the Supreme Court recently made clear that there is no policy
imperative to ignore the terms of an arbitration agreement and insist on the
availability of class procedures. In Stolt-Nielsen, the Court held that “a party may
not be compelled under the FAA to submit to class arbitration unless there is a
contractual basis for concluding that the party agreed to do so.” 2010 WL
1655826, at *13. The Court explained that “parties are generally free to structure
their arbitration agreements as they see fit” and that “it is . . . clear from our
precedents and the contractual nature of arbitration that parties may specify with
whom they choose to arbitrate their disputes.” Id. at *12. Both “courts and
arbitrators,” the Court emphasized, “must not lose sight of” there task “to give
effect to the intent of the parties.” Id. They “‘ha[ve] no general charter to
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administer justice for a community which transcends the parties.’” Id. (quoting
Steelworkers v. Warrior & Gulf Nav. Co., 363 U.S. 574, 581 (1960)).8
Moreover, to allow courts to rely on state public policy to re-write or nullify
arbitration agreements would directly contravene Congress’s goal of precluding
courts from striking down arbitration agreements based on common law hostility
toward arbitration. Congress enacted the FAA in direct response to a state public
policy that permitted courts to ignore arbitration agreements. See Wesley A.
Sturges, A Treatise on Commercial Arbitrations and Awards § 15 at 45 (1930). It
would be absurd to conclude that the FAA guarantees that arbitration agreements
shall be “valid, irrevocable, and enforceable, as a matter of federal law,” Perry v.
Thomas, 482 U.S. 483, 492 n.9 (1987) (emphasis in original), yet simultaneously
permits the survival of state public policy that voids some or all of an arbitration
agreement.
Finally, failure to enforce Sprint’s bilateral arbitration agreement on the
basis of state public policy in favor of class procedures would be precisely the sort
of “judicial hostility to arbitration agreements” that the FAA was enacted to
reverse. Scherk, 417 U.S. at 511. Arbitration is meant to be different from court—
8 The Supreme Court has instructed the Second Circuit to reconsider its decision invalidating a class-arbitration waiver on public policy grounds in In re Am. Express Merchants’ Litigation, 554 F.3d 300 (2d Cir. 2009), in light of Stolt-Nielsen. Am. Express Co. v. Italian Colors Restaur., --- S. Ct. ---, 2010 WL 1740528 (May 3, 2010).
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its primary goal is to be swifter and less expensive. Finding that bilateral
arbitration is tantamount to an exculpatory clause would signal to the lower courts
that certain judicial mechanisms are to be preferred over bilateral arbitration. If
this Court elevates the class-action form in this way, nothing will prevent the lower
courts from finding that more formal discovery is necessary in arbitration, or that a
jury of six arbitrators must come to a unanimous “verdict” in order to render
arbitration fair and consistent with state public policy.
B. The FAA Preempts The FDUTPA From Prohibiting Enforcement Of Sprint’s Arbitration Clause.
Similarly, even if Sprint’s bilateral arbitration clause conflicts with the
FDUTPA (which it does not, see Appellee’s Br. 56-59), that state statute cannot be
applied to prohibit enforcement of the arbitration clause. “By enacting [Section] 2
[of the FAA], Congress precluded States from singling out arbitration provisions,”
Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996), and “place[d]
arbitration agreements ‘upon the same footing as other contracts,’” Scherk, 417
U.S. at 510-11 (quoting H.R. Rep. No. 68-96, at 1 (1924)). “‘[S]tate law, whether
of legislative or judicial origin, is applicable [in the sense that it would affect the
validity of an arbitration agreement, only] if that law arose to govern issues
concerning the validity, revocability and enforceability of contracts generally.”
KKW Enters. Inc. v. Gloria Jean’s Gourmet Coffees Franchising Corp., 184 F.3d
42, 50-51 (1st Cir. 1999) (quoting Perry, 482 U.S. at 492 n.9).
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Numerous federal courts of appeal have found that the FAA preempts the
invalidation of arbitration clauses under state statutes that apply only to certain
types of contract. For example, the First Circuit rejected an attempt to nullify an
arbitration clause under a Rhode Island statute that voided forum selection clauses
in franchise agreements that require venues outside the state. Id. The court
explained that the state statute “purports to restrict the enforcement of only one sort
of contract provisions, forum selection clauses, in only one type of contract,
franchise agreements,” “d[id] not apply to all contracts,” and was thus preempted.
Id. at 52.9 In other words, state law may not target arbitration clauses for special
treatment or attempt to impose a judicial model on arbitration. See Doctor’s
Assocs., 517 U.S. at 687.
Because the FDUTPA applies on its face only to contracts in “trade or
commerce,” see Fla. Stat. §§ 501.203-204, and under Appellant’s argument the
FDUTPA invalidates only arbitration agreements in certain consumer contracts and
not in contracts generally, the statute cannot be used to strike down Sprint’s
bilateral arbitration agreement. To do so would contravene Section 2 of the FAA
and Congress’s intent that arbitration agreements be on “the same footing as other
contracts.” Scherk, 417 U.S. at 510-11 (internal quotation marks omitted). 9 See also OPE Int’l LP v. Chet Morrison Contractors, Inc., 258 F.3d 443, 447 (5th Cir. 2001); Bradley v. Harris Research, Inc., 275 F.3d 884, 889-90 (9th Cir. 2001); Doctor’s Assocs., Inc. v. Hamilton, 150 F.3d 157, 163 (2d Cir. 1998).
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C. Under The FAA, Courts May Only Consider Formation Defects In Assessing The Validity Of An Arbitration Agreement.
In addition to the reasons already discussed, the plain text of Section 2
provides an independent basis for concluding that the FAA preempts the FDUTPA
or Florida public policy from prohibiting enforcement of Sprint’s arbitration
agreement. The text and history of Section 2 of the FAA make clear that only a
defect in contract formation may nullify an arbitration agreement.
Section 2 of the FAA provides that an agreement to arbitrate “shall be valid,
irrevocable, and enforceable, save upon such grounds as exist at law or in equity
for the revocation of any contract.” 9 U.S.C. § 2. Each adjective describing the
status of arbitration agreements—“valid, irrevocable, and enforceable”—must be
assigned a distinct meaning. See Conn. Dep’t of Income Maint. v. Heckler, 471
U.S. 524, 530 n.15 (1985) (“It is a familiar principle of statutory construction that
courts should give effect, if possible, to every word that Congress has used in a
statute.”). And it follows that the noun “revocation”—like its adjectival antonym,
“irrevocable”—must be given a different meaning from “valid” and “enforceable.”
A contemporaneous treatise and pre-FAA case law confirm that Congress would
have understood these terms to refer to distinct aspects of contract law.
At the time of the FAA’s enactment, the term “revocability” had two
meanings. In the context of arbitration agreements, “revocability” referred
specially to a contracting party’s ability to repudiate such an agreement at will.
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See Sturges, supra, § 15 at 45. A party to an arbitration agreement was permitted:
(1) to proceed with a contract action in court irrespective of any arbitration
provision to the contrary; or, equivalently, (2) to “terminate the powers of the other
party” under an arbitration provision. Id. The rule was “based upon a public
policy which [was] said to be violated by contracts to oust the courts of their
jurisdiction.” Id. (internal quotation marks omitted). This doctrine of
“revocability” of arbitration clauses was part of the judicial hostility to their
enforcement that led to the FAA.
Outside the context of arbitration agreements, “revocability” appears to have
referred to the more limited ability of a party to nullify a contract based on
formation defects. This can be inferred from pre-FAA cases that, in criticizing the
special rule of “revocability” in the arbitration context, suggested that arbitration
agreements should be revocable only for the usual reasons applicable to any
contract. One such court opined:
An agreement [to arbitrate] induced by fraud, or overreaching, or entered into unadvisedly through ignorance, folly or undue pressure might well be . . . disregarded . . . . But when the parties stand upon an equal footing, and intelligently and deliberately . . . provide for an amicable adjustment of any difference that may arise, either by arbitration, or otherwise, it is not easy to assign at this day any good reason why the contract should not stand . . . .
Id. at 47 (quoting Del. & H. Canal Co. v. Pa. Coal Co., 50 N.Y. 250, 258 (1872)).
The court further stated, “Were the question res nova, I apprehend that a party
-18-
would not now be permitted, in the absence of fraud or some peculiar
circumstances entitling him to relief, to repudiate his agreement to submit to
arbitration . . . .” Del. & H. Canal Co., 50 N.Y. at 258 (emphasis added).
The terms “valid” and “enforceable” had altogether different meanings. See,
e.g., U.S. Asphalt Ref. Co. v. Trinidad Lake Petroleum Co., 222 F. 1006, 1007
(S.D.N.Y. 1915) (distinguishing between the terms “valid” and “enforceable”).
According to Sturges, the term “unenforceable” was synonymous with the term
“void,” Sturges, supra, § 22 at 82, while an agreement was “invalid” if it was
“contrary to public policy,” id. Indeed, the legislative history of the FAA confirms
that the concept of “validity” was distinct from the concept of “enforceability.”
See Arbitration of Interstate Commercial Disputes, Joint Hearings Before the
Subcomms. of the Comms. of the Judiciary on S. 1005 and H.R. 646, 68th Cong.
38 (1924) (distinguishing between the terms “validity” and “enforceability”).
The distinct meaning of the terms “revocability,” “invalidity,” and
“unenforceability” at the time Congress enacted the FAA makes clear that only
defects in contract formation are proper bases for refusing to enforce arbitration
agreements. Section 2 states that arbitration agreements must be honored as a
matter of federal law “save upon such grounds as exist at law or in equity for the
revocation of any contract.” 9 U.S.C. § 2 (emphases added). The use of only the
term “revocation” highlights that courts may not declare arbitration agreements
-19-
“contrary to public policy” or “void” on the grounds of “invalidity” or
“unenforceability.” See id. And the specific reference to “any” contract
underscores that courts may not rely on any analogue to the special rule of
“revocability” that existed in the context of arbitration agreements.
As the D.C. Circuit has explained, “the language of [Section] 2 . . . indicates
that Congress created an exception to the general rule (that an arbitration clause
will be enforced by its terms) only when there is a flaw in the formation of the
agreement to arbitrate.” Nat’l R.R. Passenger Corp. v. Consol. Rail Corp., 892
F.2d 1066, 1070 (D.C. Cir. 1990).10 Courts retain the authority to examine an
arbitration agreement under general principles of revocability applicable to any
contract. What they cannot do is strike down an arbitration clause based on public
policy or other concerns unrelated to defects in contract formation. See id. (“[A]
public policy issue that may preclude enforcement of [an arbitration clause] is not
such a ‘ground[] as exist[s] at law or in equity for the revocation of any contract’
within the meaning of [Section] 2.” (quoting 9 U.S.C. § 2)).
This reading of Section 2 is not only true to its plain text and history, but
also vindicates the FAA’s “basic precept that arbitration is a matter of consent, not 10 See also Supak & Sons Mfg. Co. v. Pervel Indus., Inc., 593 F.2d 135, 137 (4th Cir. 1979) (explaining that Section 2 preempts any law of judicial or statutory origin that “restrict[s] the validity or enforceability of arbitration agreements,” but “does not displace state law on the general principles governing formation of the contract itself”).
-20-
coercion.” Stolt-Nielsen, 2010 WL 1655826, at *11 (internal quotation marks
omitted). The limitation prevents courts from using state public policy or their
own sense of fairness to force parties to arbitrate on terms not agreed to. At the
same time, courts have the power to ensure that, as in any contract, there has been
true consent in the formation of the arbitration clause. As shown in Sprint’s brief,
there was no defect in contract formation here. The express agreement to bilateral
arbitration should therefore be enforced according to its terms.
CONCLUSION
For the foregoing reasons, CTIA requests this Court hold that Sprint’s
bilateral arbitration agreement must be enforced according to its terms.
Respectfully submitted,
/s/ Andrew G. McBride
May 17, 2010
Andrew G. McBride (pro hac vice) Elbert Lin (pro hac vice) Stephen J. Obermeier (pro hac vice) Charles C. Lemley (Fla. Bar No. 0016314) WILEY REIN LLP 1776 K Street, NW Washington, DC, 20006 Tel: (202) 719-7000 Fax: (202) 719-7049 Counsel for Amicus Curiae CTIA—The Wireless Association®
-21-
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the foregoing has
been furnished by electronic mail and U.S. Mail this 17th day of May 2010 to:
Douglas F. Eaton William G. Wolk HOMER BONNER 1200 Four Seasons Tower 1441 Brickell Avenue Miami, FL 33131 [email protected][email protected] Counsel for Appellant, James Pendergast, et al.
Daniel Prichard David E. Mills DOW LOHNES, PLLC 1200 New Hampshire Ave., NW Suite 800 Washington, DC 20036 [email protected][email protected] Counsel for Appellees, Sprint Nextel Corporation, Etc.
Michael Kovaka DOW LOHNES, PLLC 6 Concourse Parkway Suite 1800 Atlanta, GA 30328 [email protected] Counsel for Appellees, Sprint Nextel Corporation, Etc.
Thomas R. Julin Samuel Alberto Danon Corey A. Lee HUNTON & WILLIAMS 1111 Brickell Avenue Suite 2500 Miami, FL 33131 [email protected] Counsel for Appellees, Sprint Nextel Corporation, Etc.
Bard D. Rockenbach BURLINGTON & ROCKENBACH, P.A. Courthouse Commons, Suite 430 444 W. Railroad Ave. West Palm Beach, FL 33401 [email protected] Counsel for Amicus Curiae, Florida Justice Association
Lynn Drysdale Jacksonville Area Legal Aid, Inc. 126 West Adams Street Jacksonville, FL 32202 [email protected] Counsel for Amicus Curiae, Jacksonville Area Legal Aid, Inc.
Brian W. Warwick Janet R. Varnell VARNELL & WARWICK, P.A. 20 La Grande Boulevard The Villages, FL 32159 [email protected] Counsel for Amicus Curiae, National Association of Consumer Advocates
James A. Kowalski Jr. 12627 San Jose Blvd., Suite 203 Jacksonville, FL 32223 [email protected] Counsel for Amicus Curiae, AARP
/s/ Elbert Lin Elbert Lin
-23-
CERTIFICATE OF COMPLIANCE WITH RULE 9.210(a)(2)
I HEREBY CERTIFY that the foregoing has been prepared using Times
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